Budget crisis, union ties weigh heavily in Los Angeles mayor race

Reuters News
Posted: May 17, 2013 7:05 AM
Budget crisis, union ties weigh heavily in Los Angeles mayor race

By Tim Reid

LOS ANGELES (Reuters) - Amid the mudslinging that has marked Los Angeles' mayoral race, the two candidates vying to lead America's second-largest city agree on this: its finances are terrible, and runaway wages and pensions paid to workers need to be reined in to avoid fiscal meltdown.

The problem, critics say, is both candidates in Tuesday's election are liberal Democratic City Hall veterans who voted for the very public sector wage increases now crippling the city's finances - and who are unable, and perhaps unwilling, to break organized labor's grip on Los Angeles and fix a budget crisis that could ultimately drive the city of 4 million to bankruptcy.

Los Angeles voters will choose between Eric Garcetti, a fixture of the city council since 2001 and former council leader, and Wendy Greuel, who used to sit on the council before becoming city controller in 2009. Recent polls have them in a statistical tie.

The victor inherits a city that has shifted from anti-union to heavily pro-union in 40 years, particularly in the last decade when unions have become more organized in getting their candidates voted onto the city council.

"New York and Chicago are big union towns but in those cities union power is waning," said Jaime Regalado, emeritus professor of political science at California State University in Los Angeles.

"Los Angeles is becoming a city where unions have an unrivalled power that others no longer enjoy."

The budget is creaking under the weight of that influence. The city's chief accountant projects a $1.1 billion cumulative deficit for the four years to 2017. Over 70 percent of the city's $3.4 billion general use funds are spent on salaries and benefits for police and firefighters, compared with 50 percent in San Jose, another struggling California city. Los Angeles' total annual budget is $7.2 billion.

Los Angeles' pension obligations, like those of many other cities in California and around the country, are also increasing at an alarming rate. A recent report by an independent watchdog, California Common Sense, said city pension costs have increased at a 25 percent average annual rate over the last decade.

In fiscal year 2002-03, pensions consumed 3 percent of the city's budget. That is projected to jump to 18 percent, or $1.3 billion, this year, the report stated.

Unfunded liabilities - the amount of extra money the city has to pay to meet its long-term obligations - have increased from $87 million to $9.4 billion in the past 10 years. The report states that using a more realistic investment return rate, the figure is probably nearer $26 billion.

"If things keep going as they are, all signs point to bankruptcy," said report author Adam Tatum. "I don't think enough people realize that this unfunded pension liability is not something abstract. The city really will have to pay this."


Garcetti and Greuel are vying to replace Antonio Villaraigosa, a Democratic powerbroker who steps down after eight years due to term limits.

He leaves a city thriving with the resurgence of downtown and a healthy Hollywood industry, but also struggling to recover from the housing collapse and recession. The city jobless rate hovers near 11 percent, over the national average of 7.6 percent, undermining the ability to raise more tax revenue.

Austin Beutner, once Villaraigosa's deputy mayor and a former investment banker, sees an "impending financial crisis."

Beutner cites billions of dollars of deferred maintenance on infrastructure, especially potholed roads and broken sidewalks, as Los Angeles has sought to cut costs. He is frustrated with the candidates' failure to address the growing deficit.

"They are going to have to work with labor to come up with a construct to deal with the structural deficit," Beutner said. "But neither has formed a specific plan to balance the budget. Neither has said anything specific about contracted wages."

In 2007, Villaraigosa, Garcetti and Greuel all helped negotiate a 25 percent pay increase over five years for most of the city's 30,000 workers. That has been deferred twice - but a 5.5 percent raise, part of that deal, is due in January.

In recent days Villaraigosa has said the deal was a mistake. Greuel told Reuters the city cannot afford to pay the upcoming raise, and she would seek to renegotiate it. Yusef Robb, a Garcetti senior advisor, said his candidate would do the same.

But both have received clear warning that any attempt to change the deal will be fiercely opposed.

"We're not interested in renegotiating our contract again," Bob Schoonover, president of the city's largest civilian union, the SEIU with 10,000 workers, said via email.

"A deal's a deal. The mayor signed a contract and we expect the city to honor it."


Garcetti, and other critics of Greuel, question her ability to wring concessions from the city's major unions after they have bankrolled her campaign with millions of dollars.

To date, the police officers union has given over $1.4 million to groups supporting Greuel's candidacy, according to campaign records published by the city. The firefighters have spent nearly $500,000.

The union representing the powerful Department of Water and Power - the nation's largest municipal utility - has bankrolled Greuel to the tune of $2 million.

Civilian workers in Los Angeles can retire at 55 and public safety workers at 50, and in both cases those with long service receive pensions totaling 90 percent of their final salary. A civilian worker earns an average of $50,000 a year, while Department of Water and Power workers average $101,000 and firefighters $132,000.

Greuel said she wants to make changes through collective bargaining, with the unions. "The fact is, the city has to look to the long term and make tough decisions," she told Reuters.

Her main proposal on pension reform is to raise the retirement age for civilian workers and she told Reuters she would explore lifting it to between 62 and 65.

Yet Greuel's top proposal on her website also contains a footnote: "This will require a state law change" - a reference to rulings holding that already promised contractual benefits are inviolate.

"That gives her the luxury of calling for a change she knows is unlikely to occur," said Dan Schnur, a political analyst at the University of Southern California.

Garcetti, 42, touts his role in a reform passed by the city council in 2012 that curbed wages and benefits for new hires, and increased existing pension and health care contributions.

Yet he not only backed wage hikes in 2007, but voted for big salary and benefit increases for Department of Water and Power workers in 2005 and 2009.

While Greuel enjoys strong blue-collar support, Garcetti has received financial backing from some smaller unions, along with white-collar sources such as real estate developers, businesses and Hollywood.

Schnur, who describes the city's finances as "teetering on catastrophe," said: "If Greuel or Garcetti actually said honestly, and specifically, what is needed to fix the city's finances, they would be unelectable."

(Editing by Jonathan Weber, Mary Milliken and Lisa Shumaker)